Authority accepts Highmark offer

Postpones premium increase required by Affordable Care Act

October 6, 2013

The Altoona Housing Authority has accepted an offer from Highmark to shift the renewal date for its employee health insurance to the end of this year so it can retain current premiums through next year - postponing a 40 to 50 percent increase due to the Affordable Care Act.

The proposed increase, the offer to delay it and the acceptance of that delay provide a window into the likely ramifications of the controversial Affordable Care Act, as one of its key milestones - the opening of the private insurance "Marketplace" - began on Tuesday.

For the Housing Authority, renewing Dec. 1 will mean the 2014 renewal required by the ACA can occur Dec. 1 of next year, instead of in mid-2014, which will benefit both sides, potentially.

Highmark is proposing the increase because, under the ACA, it may need to deal with liability for greater claims, largely due to the law's prohibition against actuarial calculations based on policy holders' health history, according to Timothy Fulmer, the authority's Bedford-based insurance broker.

Under the ACA, insurance companies will no longer be able to calculate their liability exposure as they once could, given the new prohibition on even learning - much less charging rates that reflect - the medical histories of enrollees, said Brian Brumbaugh, co-owner of Preferred Benefit Specialists.

Even before, insurers couldn't exclude high-cost individual members of a group, Brumbaugh said.

But they could, for example, adjust their rates to reflect their knowledge that Company X's group of 40 workers contained four active cancer patients, three diabetics and two who had had heart attacks.

Next year, they can't do that.

They can't even base next year's rates on such a group's overall prior claim history.

They can only adjust premiums based on age, family composition, tobacco use and variations in cost of health care by geographical area, according to Fulmer.

Moreover, the age adjustment can be no greater than 3 to 1 and the tobacco use adjustment no greater than 1.5 to 1, according to a UPMC document on the ACA changes provided by Brumbaugh.

"It's kind of like they never knew," Brumbaugh said of the insurance companies. "[It's] a guessing game for the carrier."

So the insurers will be conservative and guess high to cover the possibility of high-cost claims, he said.

They'll go into self-protective mode, he said.

Insurers are also raising rates to cover the cost of a tax or fee that the ACA is levying on their share of business to help pay for tax-credit subsidies for low-income individuals to buy insurance in the new marketplaces, according to Brumbaugh and others.

And they're raising rates to cover the cost of wellness services like mammograms and colonoscopies that ACA won't let them charge for, he said.

Insurers also may be trying to cover the cost of the recent new requirement that they keep children until age 26 on family plans and the ACA prohibition on lifetime benefit caps for policyholders, Brumbaugh said.

Under the ACA, companies need to give back to policyholders any premium profits beyond 20 percent, Brumbaugh said.

Given those additional costs, it may seem counterintuitive that Highmark would offer employers like the Housing Authority a postponement of a big cost increase.

It makes sense, though, given the authority's status as a "small" employer, with fewer than 51 full-time equivalent workers, and so not obligated under the ACA to provide health insurance to its employees or face penalties, Fulmer said.

Facing those big increases, the authority and other similar organizations could simply - and impulsively - give up their coverage, divert the funds they've contributed to it to their workers and tell them to seek plans in the new marketplace, according to Fulmer.

"I think Highmark is scared for its premium collection life," he said.

Given a whole year's reprieve, those employers may figure out a way to handle the increase within their budgets.

The delay option "takes the guesswork and confusion out" for employers like the Housing Authority, and "may be the right choice" for those who are cost conscious and wishing for "an additional year to learn more about the aspects of health care reform," wrote Highmark spokeswoman Kristin Ash in an email.

Early renewal will also help clients protect plan designs with low deductibles, low copay and low out-of-pocket costs for employees, Brumbaugh said.

"Employers want to keep the status quo for as long as they can," Brumbaugh said.

About 80 percent of the Highmark groups Fulmer works with face increases, like the Authority, he said.

But 20 percent will see a decrease because of the ACA changes, he said.

Premiums for larger groups with younger, healthier members will increase because insurers won't be able to charge rates that reflect their good medical histories, according to Fulmer.

Premiums for smaller groups with older, unhealthier members will decrease 10 to 50 percent, because insurance companies, likewise, won't be able to charge rates that reflect that bad medical history, according to Fulmer.

Under the ACA, individuals in this area now covered by employee plans will tend to pay more, like most of their employers, according to Fulmer and Brumbaugh.

Plans under the ACA are slotted as platinum, gold, silver and bronze, and will require enrollees to pay 10, 20, 30 or 40 percent co-insurance, respectively.

For the lower-priced plans - silver or bronze - the government is requiring that policies have a total maximum out-of-pocket of $6,350 per year for individuals and twice that for families, Brumbaugh said.

That comprises a deductible up to $2,000, co-insurance that could be 20 percent of any particular charge and copays of $100 to $150 for primary care, specialist care, lab work and pharmacies, according to Brumbaugh.

That contrasts to most plans in western Pennsylvania, which offer coverage in the 90 percent range, with low or no deductibles and low copays, according to Fulmer.

The average plans for small business employees in this area have a deductible of $500, no co-insurance requirement at all, $15 co-pays for primary doctors and $20 copays for specialists, Brumbaugh said.

"It's going to be a dramatic shift," Fulmer said.

The ACA requires everyone to be insured.

In theory, that should provide enough healthy people in the insurance pool to make coverage affordable.

But the "excise tax" or penalty that the ACA will charge those without coverage - some call it a penalty - isn't high enough to ensure participation, even though "it makes the math work," according to Fulmer.

The tax penalty for 2014 is $95 per adult and $47.50 per child, up to $285 per family or 1 percent of family income, whichever is greater, according to the UPMC document.

A person without coverage for part of the year pays a percentage that reflects the time without insurance.

But a penalty of less than $100 for a whole year without insurance is hardly enough incentive to buy coverage that could cost $3,600, Fulmer said.

If the penalty were, say, two-thirds of the premium cost, it would have "teeth," he said.

Still, the penalty escalates in steps, according to the UPMC document.

By 2016, it will rise to $695 per adult, $347.50 per child, up to $2,085 per family or 2.5 percent of family income, whichever is greater, according to the UPMC document.

After 2016, those penalties will increase annually by cost of living, according to the UPMC document.

The sweetener provided by the ACA to offset the disparity - at least the early disparity - between the cost of insurance and the penalty for not buying it is the tax credit that low-income people can receive to help them pay the premium, Fulmer said.

People earning between 100 and 400 percent of federal poverty will be eligible for those tax credits, with a subsidy in inverse proportion to their earnings, according to Brumbaugh.

The federal poverty limit for an individual is $11,490, and for a family of four, $23,550, Brumbaugh said.

Fulmer said he is not impressed with the tax credit subsidy, which he sees as just "a moving of money" - given that it's funded through the insurance company tax, and as such will simply be passed on to become part of overall health care costs.

Those earning less than 100 percent of federal poverty are slated by the federal government for Medicaid coverage, according to state Department of Public Welfare Secretary Bev Mackereth, who visited the Mirror last week.

Under a plan the feds haven't approved yet, however, Pennsylvania is seeking to divert that Medicaid money to subsidize Marketplace purchase of private insurance for many of those under 100 percent of federal poverty, Mackereth said.

The ACA isn't flawed in one way that it's commonly believed to be, according to Fulmer.

It's not true that anyone can get coverage at any time under the law, he said.

A person in the ambulance on the way to the hospital from a car crash in June, for example, can't call the insurance company and get a policy to cover the medical bills the crash will create, he said.

Under the ACA, people will be able to enroll only during open enrollment periods, although they can enroll at other times after a "qualifying event," like a marriage, divorce or birth of a child, he said.

For 2014, the open enrollment period began last week and continues until March 31 of next year, according to the healthcare.gov website. For 2015 and subsequent years, it's Oct. 15 to Dec. 7 of the prior year. There may be a security problem with the law, however.

The Treasury Department admitted recently that the "back door" of the Marketplace exchange is open for hackers, Fulmer said.

That creates a concern about identity theft because the exchange requires participants to log on with their names, addresses, birthdates, Social Security numbers and income, Fulmer said. Whatever the potential problems, it's a "no brainer" for organizations like the Housing Authority to take advantage of the postponement of the higher rates, Fulmer said.

The postponement itself is a benefit, and the ACA could change to its advantage before they have to accept the higher rates near the end of next year, according to Fulmer.

Fulmer estimated that 75 to 80 percent of his Highmark groups have accepted the switch in renewal dates.

The ACA changes have made self-insurance with a third-party administrator an attractive option for smaller companies because many ACA regulations wouldn't apply, including the prohibition against using medical history to set group rates, according to Brumbaugh.

Previously, self-insurance didn't make sense unless a company had several hundred employees, he said.

Companies with as few as 30 mostly healthy employees, a wellness program, a secure cash flow and a history of low claims might be good candidates for self-insurance, although setting it up is a "very company-specific process," he said.

Large employers - those with 51 or more full-time equivalents - face different issues. Under ACA for 2014, those who fail to provide employee coverage must pay $167 per full-time employee per month, not counting the first 30 employees, according to the UPMC document. They can be penalized up to that same amount for offering coverage that doesn't meet minimum required value or that is unaffordable - that is if the employee contribution exceeds 9.5 percent of family income, according to the UPMC document.

A penalty trigger can be a full-time employee accessing tax credits through the exchange.

The ACA will create turmoil next year, Fulmer said.

If nothing changes, it will take three years to "settle and shake out," he said.